GMM

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The 2013 Nobel prize in economics was won by Fama, Shiller, and some other dude, according to most media accounts. Fama and Shiller were pretty easy to explain: one of them is at Chicago and is associated with a theory called “efficient markets,” so he’s the free market guy. Shiller criticized the Chicago guy, so we know where to put him on the political spectrum. But this third guy, Hansen, well, he’s at Chicago, but he does some sort of theoretical econometrics, so if we’re the Guardian we’ll just assume he’s “ultra-conservative” and then ignore him, or if we’re anyone else we’ll skip to just ignoring him (even the Economist gives up, complaining they can’t explain his work without “writing all sorts of equations in our newspaper.”) This post attempts to provide a relatively gentle, albeit with all sorts of equations, introduction to part of the third guys’s research, focusing on applications in causal modeling in microeconomics rather than the examples from finance or macroeconomics.

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